Bank of England QT Adds 0.7 Points to UK Borrowing Costs After £134 Billion Gilt Sales
Updated
Updated · The Guardian · May 21
Bank of England QT Adds 0.7 Points to UK Borrowing Costs After £134 Billion Gilt Sales
7 articles · Updated · The Guardian · May 21
Investors estimate the Bank of England’s active quantitative tightening has added as much as 0.7 percentage points to UK government borrowing costs after £134 billion of gilt sales since 2022.
The Bank sold £7.6 billion of gilts this year and plans another £12 billion, nearly halving its share of UK gilt holdings in three years instead of letting bonds mature as many peers did.
That policy, the report argues, has amplified the political clout of "bond vigilantes" by making market pressure look like the main constraint on fiscal policy after the 2022 Truss gilt turmoil.
Separate QE losses have already shifted more than £100 billion to the Treasury, while inflation-linked gilts have added £153 billion in debt-service costs since the 2022 Russia price shock.
Looking ahead, the piece says shrinking pension-fund demand for gilts could raise annual debt-interest costs by about £22 billion over the next decade unless policy changes.
Is the Bank of England's strategy an inflation-fighting necessity or a self-inflicted wound crippling UK finances?
Can the UK reclaim its economic sovereignty without triggering another financial crisis?
Is forcing private pensions to fund public projects a savvy plan or a gamble with workers' retirement savings?
The £130 Billion Question: How the Bank of England’s Aggressive Quantitative Tightening Is Driving Up UK Borrowing Costs and Threatening Fiscal Stability
Overview
The Bank of England’s aggressive Quantitative Tightening (QT) program, which involves actively selling government bonds (gilts), is directly increasing the supply of gilts in the market. This greater supply pushes up gilt yields, making it more expensive for the UK government to borrow. The UK gilt market is also highly sensitive to global financial trends, especially changes in the US term premium, which can influence sterling rates. Notably, there is a strong correlation between movements in UK and US yield curves, meaning optimism in US markets can further steepen the UK curve and raise borrowing costs. These interconnected factors highlight the complex impact of QT on UK financial stability.